Can I claim deductions for occupancy expenses such as rent or mortgage interest?

If you are running a business from home in Australia you will no doubt be curious to know what your options are for home office deductions.

There are 2 branches of deductions for your home office:

1)    Occupancy expenses – E.g., water, rent,interest, insurances

2)    Running expenses – E.g., electricity, gas, and repairs.

If you have an area in your house which has characteristics of a ‘place of business’ such as:

-       Used for regular client meetings.

-       Not suitable or set-up for general private use

-       Clearly identifiable as a place of business

-       Exclusively used for business activity

Then you may be able to claim both occupancy expenses and running expenses according to TR 93/30.

If you do not have an exclusive area used for business activities, then you can most likely only claim running expenses.

How are occupancy expenses claimed?

Occupancy expenses are claimed on a floor area basis where the floor area of the home office will need to be converted to percentage of floor area of the entire covered area of the house.

This percentage can then be applied to the actual occupancy expenses incurred.

Capital gains consequences of using main residence for business.

If you own a home which is considered your main residence, then generally it will be exempt from capital gain tax upon sale.

However, if you claim occupancy expenses for your home office then Section 118-190 of ITAA97 will apply when the main residence is disposed of.

Capital gains tax will have to be calculated, but will only be payable as a percentage based on the floor space of the home office. E.g. if you owned a home for 8 years and used 10% of the house as a home office for the entire period then a sale which resulted in a capital gain of $50,000 which would usually be disregarded would require a CGT payment of $5,000 (10% x $50,000).

It is important to speak to your accountant if you wish to claim occupancy expenses in a home you own so the tax consequences can be calculated, and the most beneficial decision made.

Need help with home office deductions and Capital gains tax?

CTK Accounting are tax specialists based in Wollongong and servicing the greater Sydney area.

For CGT or any other tax queries reach out to us through our contact page.

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